NEW REVENUE MANAGEMENT TECHNIQUES, DYNAMIC PRICING AND DISTRIBUTION CHALLENGES

Transcription

1 NEW REVENUE MANAGEMENT TECHNIQUES, DYNAMIC PRICING AND DISTRIBUTION CHALLENGES Karl Isler Swiss International Air Lines IATA Commercial Strategy Symposium December 2010, Istanbul

2 CONTENT 1. Dynamic pricing through GDS channels 2. Major distribution challenges and drawbacks 3. Move to continuous prices 4. New ways to distribute 2

3 DYNAMIC PRICING THROUGH GDS CHANNELS (SCHEMATICAL) Information about customer delivered with seamless request reveals information about WTP Agent GDS Price Availability = Price Availability Fare Levels RTDP Control Parameters Fare Adjustment ATPCO Price points (rules minimized) 3 Integrated Revenue Management

4 DYNAMIC PRICING THROUGH GDS CHANNELS (PRACTICAL) Differential pricing effected via 3 basic categories 1. Itinerary and time of booking Advanced purchase, minimum stay, season, weekday etc. 2. Passenger segment Tour operator package, seamen, student etc. 3. Flexibility, additional services Rebooking, refund, bundling with ancillaries Category 1 and 2 can be coded into availability (in principle) Fare >= Bid Price Fare Fare Modifier >= Bid Price Fare modifier depends on elasticity: Quantitative fare rules Category 3 implemented with fare families: dynamic price for each flexibility category or product bundle 4

5 FARE ADJUSTMENTS AND DEMAND FORECAST Fare adjustments can be calculated from a demand forecast considering choice behavior (e.g. hybrid forecast) via the efficient frontier construction. Usually a too fine grained segmentation. Need to extract important features: segmentation Demand dimensions 5

6 SEGMENTATION BY FARE ADJUSTMENT Fare Adjustments Fare Value Y Request & Informatio n RTDP classes closed for all segments B M H Q Bid Price Fare adjustment: Conditioned on information in the request Desired (optimal) margin above bid price for customer segment Perfect segmentation: Forecasting independent bookings per class would be sufficient to calculate bid price. Never true in practice 6

7 REQUIREMENTS TO THE DISTRIBUTION WORLD 100% Polling and GDS products such as... - Full PNR Itinerary information Supported by all major GDSs - Seamless availability Supported by all major GDSs - Interactive sell Supported by all major GDSs - Journey / Trip data Supported by all major GDSs - Interactive Married Segment Control Supported by all major GDSs Does now all work perfectly fine? Unfortunately... NOT QUITE! 7

8 DISTRIBUTION CHALLENGES WITH O&D DYNAMIC PRICING Point of Commencement vs. Point of Sale - POC is industry standard for fare quotation since a long time - SWISS applies POC control by evaluating the round-trip pattern - O&D RMS usually use POS as proxy for POC - POS may not reflect true applicable fare i.e. ZRH agent may book LHR-ZRH- LHR - Discrimination per POS within EU may be deemed illegal - POC better known with e-channels (structured process), but not exactly known with distribution system when booking is made Problem - Agent may book in wrong sequence or book fake segment to hide true POC - Distribution system cache is not reflecting true availability in many cases Possible solutions - Distribution systems to provide and to guarantee correct POC information - Distribution systems to send round-trip information and to support round-trip marriage 8

9 DISTRIBUTION CHALLENGES WITH O&D DYNAMIC PRICING Interactive Married Segment Control (ITARES) - Supposed to ensure ticketing according to the evaluation process of a booking - Number of segment not consistent across all GDSs - Min. of 3 segments good for connections - Round-trip marriage only supported by some GDSs Problem - Marriage break possible with creative procedures by GDS agents - Dynamic Pricing creates higher incentives to break marriages Possible Solution - No conditions and own interpretation of marriage by the distribution systems - Distribution systems to support a least 6 married Segments - Distribution systems to send round-trip information and to support round-trip marriage 9

10 DYNAMIC PRICING THROUGH GDS CHANNELS MAJOR DRAWBACK The need for booking classes in GDS distribution is the most severe drawback for dynamic pricing. Only 26 price points to switch on and off Competitors with pure web distribution can have continuous (or arbitrarily fine grained) price points Fare levels have to be changed repeatedly Traditional way out is to publish more than one fare level per booking class, distinguished by hard coded rules. 10

11 CLASSICAL FARE STRUCTURE LONG HAUL More than 100 price points Price Half Return Up to 30 points per booking class Departure Date B H M Q V W Y 11

12 DYNAMIC PRICING THROUGH GDS CHANNELS MORE PRICE POINTS & COMPLEX RULES Price Agent GDS Price Availability Fares RTDP ATPCO 12 Control Parameters Fare Adjustment Fare Rules Integrated Revenue Management Price points complex rules

13 ARE BOOKING CLASSES NECESSARY? Why not respond with price directly to seamless requests, as would be possible with current RM technology (RTDP etc.)? Information Price Travel Agent GDS Price Airline Booking classes needed for compartment only, or additionally for product flexibility conditions (fare families) Availability control by fare code? 13

14 EVOLUTION TOWARDS ONLINE SEGMENTATION AND INDEPENDENCE FROM GDS Online Dynamic Pricing Discriminating Information Price ALN OD Dynamic Pricing Carrier OD Carrier Leg Carrier GDS Tvl Agent GDS Tvl Agent GDS Tvl Agent Fare Levels Availability & Rules Fare Levels & Rules OD Availability Fare Levels & Rules Availability ALN ALN ALN Online (Re)evolution 14

15 THE INTERNET REVOLUTION UNPRECEDENTED POSSIBILITES FOR PRICE DIFFERENTIATION In practice, there are many who not only know you are a dog, but are familiar with your age, breed, illnesses, and tastes in dog food. Andrew Odlyzko in Privacy, Economics, and Price Discrimination on the Internet (2003) 2010: With the social networks on the web many also know who your friends are, what they do and like etc. Peter Steiner in The New Yorker (1993) 15

16 HOW TO MOVE FORWARD WITH GDS CHANNELS? Move to continuous prices may be disruptive for current agent processes. It is unlikely that all GDS move simultaneously GDS would need buy-in from agent community Investments in times of downward pressure on booking fees? Distribution via Internet only is not an option for many airlines. Interline bookings involving several airlines are still a major USP for GDS channels. Will Internet aggregators, pulling prices directly from airline.com, fill the gap? What about Full Content contracts reducing GDS costs on one hand but tie airline.com and GDS prices together on the other hand. Are full content contracts independent of channel costs and capability clever? 16

17 POSSIBLE WAY FORWARD GDS Traditional distribution Traditional fare distribution Still needed? Tvl Agent GUI Price ALN.COM Price Single XML Interface ALN RM Internet Aggregator Price Equal content can be guaranteed 17

18 THANK YOU 18